Moving Towards Acceptance of Unpermitted Operators
## Moving Towards Acceptance of Unpermitted Operators – Legal Matters & Adherence – iGB
Unlawful online wagering is a major issue for player safety and governmental revenue. However, as Paul Gilven points out, most locations with regulations for gambling still permit individuals to profit without adhering to these regulations. Can we take more action to curb these unauthorized operators?
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**Moving Towards Acceptance of Unpermitted Operators**
Online wagering has been present since the inception of the internet, and we have witnessed a growing number of issues stemming from illegal gambling.
Nearly every nation that has established rules for gambling has observed an increase in issues related to gambling addiction and other negative consequences, and many of these issues originate from operators lacking licenses.
There is much discussion regarding a “level playing field” for authorized operators, but it is difficult to envision how any marketplace can be beneficial for anyone when it permits illicit operators to operate. These illicit operators hold an advantage due to their exemption from fees and taxes, and they are not bound by the same regulations regarding advertising or assisting individuals with gambling problems. They have also been present for an extended period, resulting in a substantial customer base. It is not unexpected that generating revenue without incurring any expenses constitutes a profitable business model.
Legislators often assume that legalization and regulation will eradicate the “underground market,” or at least diminish it to a negligible level, but this is not the case. In February, the Gambling and Gaming Commission published a study derived from a PwC report, some key points of which are as follows:
Meanwhile, a December 2021 United Nations report discovered that illicit operators worldwide take in up to $1.7 trillion in wagers annually, presenting a substantial risk to the integrity of global sporting events and fair competition.
Comprehending the Market: Three Stages of Regulatory Development
As regulation progresses to safeguard consumers and control the online gaming industry, the underground market has adjusted to capitalize on the shift toward increased licensing and regulation. In the absence of effective consumer education about what constitutes legal, regulated, and tax-paying gambling and gaming operators, the underground market flourishes.
Currently, the world is divided into three stages of regulatory development:
Unregulated Markets:
There are no specific laws in place concerning online gambling and gaming. Consequently, in such regions, there is no underground market or legitimate market for online gambling and gaming—the market is legally and practically permitted, but all participants acknowledge that they may encounter some legal risks in the future if they choose to offer services in this pre-regulatory state.
Regulated Markets:
These marketplaces – during the process of creating and enacting legislation – might be categorized as “grey” if there are currently no enforceable rules to restrict or control online participants.
In these marketplaces, governmental indifference enables illicit markets to thrive, while stricter regulations on authorized operators might give illicit markets an edge. In the United Kingdom, one of the most developed online gambling marketplaces, the current government has initiated a process that could result in significant alterations.
These alterations present an opportunity for the illicit market and contribute to a reason for unlawful operators to remain in the marketplace. These changes to “gambling and gaming operations” – particularly advertising and bonuses – tend to lead to gambling consumers demanding what they are already “used to.” It is these unregulated unlawful operators who will continue to provide these popular “comforting” elements, catering to consumer familiarity.
Regions at this stage sometimes plant the seeds of illicit market expansion, as legal and compliance discussions before launch prompt some operators to decide whether to “take a risk” and remain in the marketplace, or operate unlawfully without a license.
Controlled marketplaces:
A marketplace with licenses and taxes, as well as enforcement and law enforcement, usually only targeting licensed operators. The United Kingdom is a prime example.
Consumer comprehension
…
The illicit market for wagering is flourishing, both presently and historically, as many individuals fail to perceive these online platforms as unlawful or hazardous.
Why? It’s straightforward: how people discover and utilize them. They resemble and function identically to conventional online gambling platforms, and individuals locate them in the same manner: through search engines, social media, advertisements, word-of-mouth, and so forth. You don’t need to visit dubious locations to find them – they are ubiquitous, merely a Google search or a tap on your phone away.
When you conduct an online search for casinos or sports betting websites, you encounter a blend of results. Some are legitimate, authorized websites in regulated regions, but numerous are unlicensed, operating outside the law, disregarding regulations, and, most detrimentally, not paying taxes or safeguarding players.
This deficiency in awareness and education is the reason why individuals are unconcerned about the legality or regulation of these websites. Most individuals lack comprehension regarding what constitutes a legitimate website, why these regulations exist, or why they should be concerned.
Within a setting where authorities impose advertising prohibitions or strict rules, regulated gambling businesses face a challenge in differentiating themselves from illicit operators and enlightening the public. This lack of education is exploited by the underground market.
Should a region enforce a rule compelling authorized platforms to refrain from offering retention incentives, how will consumers respond? They will search online for bonuses and discover numerous, if not countless, unlawful black market choices concealed among legitimate, authorized, and compliant providers. These websites lack authorization. They do not safeguard players. They do not contribute to the public purse or modify their operations to become and remain compliant. This is the competitive edge the black market acquires.
What implications does this have for taxation, player safety, and operators?
What practical consequences does condoning the existence of the illicit market have for these crucial areas?
**Taxation**
Tax revenue derived from gambling and gaming will be stifled, become unpredictable, and steadily decrease. Only those platforms that responsibly align, adhere to conditions, obtain licenses, pay taxes, and operate according to rules and regulations will generate tax revenue, and they confront unfair competition from black market websites daily.
It is projected that for every authorized website, there are at least two or more websites operating abroad, aiming at the market but avoiding taxes, not safeguarding players, and not adhering to any regulations.
This dichotomy, largely imperceptible to customers, is known as “channeling”: the portion of the gambling and gaming industry that has transitioned from an unregulated state to a licensed and regulated state since regulation commenced. The lower the channeling proportion, the less tax revenue is generated from gambling and gaming, and the weaker all consumer protection agreements become.
If the illicit market is not effectively eradicated or kept out of sight, consumers will continue to unknowingly participate in it, essentially the same way they did before regulation. Online, and in the media channels where today’s audiences primarily access information, the illicit market is real, and in some cases even favored, to the point that it can even eclipse the visibility and relevance of licensed websites.
Player Safeguarding
Unlawful operators targeting the regulated market pose problems for individuals and society, primarily among minors and those at risk of gambling-related harm.
With the illicit market just a Google search away, the much-touted objective of player safeguarding has so far been nothing more than a hope.
Every legal guideline, regulatory body rule, and penalty, along with the threat of license revocation, all point towards a single objective: safeguarding at-risk and vulnerable individuals. However, this objective won’t be achieved in any significant way if we allow illicit markets to flourish and fail to implement adequate provisions and products that enable regulators to monitor, enforce, and carry out the meaning of licensing.
**Protecting Operators**
Operators, having paid substantial licensing fees and hefty taxes to gain market share, while adhering to stringent and costly gambling problem protocols, often accept short-term losses in anticipation of long-term gains. They need the assurance of a fair playing field.
However, they are not currently experiencing this compared to the illicit market. To maximize their investment in the regulated market and contribute to maintaining a secure, regulated environment, it is essential to reduce and curb the illegal market’s diversion of revenue.
**The Repercussions**
Without sufficient systems to monitor, enforce, and execute the regulated market, three negative outcomes can be identified:
These are not outcomes that should be accepted, but they are occurring due to the lack of solutions so far.
**Combating Illegal Markets**
The PwC BGC report highlights that authorities in Sweden, Belgium, Spain, France, the Netherlands, and Denmark are actively working to keep illegal gambling out of their domestic markets. However, some of these efforts are counterproductive, particularly the restrictions on advertising and bonuses (Italy, Norway, and Spain). This only encourages gamblers to engage with illegal gambling and results in a lack of public awareness regarding the dangers of unlicensed gambling.
In Asia, the Asian Racing Federation has formed an Anti-Illegal Gambling Task Force. The task force’s goal is to “promote and strengthen international collaboration between racing operators, regulators, intergovernmental organizations, and government agencies to better combat the threat of illegal gambling and other financial crimes that threaten the integrity of racing, especially the sport.”
The task force plans to conduct research to identify connections to organized crime and expose links to horse racing and sports, thereby assessing the impact on the integrity of these sporting events.
The rapid growth of sports betting in the United States has led to increased concerns about illegal gambling, often centered around issues of sports integrity and consumer harm. The American Gaming Association has been actively advocating for protective measures, but these measures currently appear to be focused at the federal level, where no concrete action has been taken yet.
On a state-wide scale, the matter is beginning to garner attention. Connecticut is cautioning basketball enthusiasts about illicit operators who are targeting residents with Final Four wagering activities. According to a 2020 Forbes piece, unlawful sports betting markets are projected to have between $50 billion and $200 billion in bets. The article cites the American Gaming Association, Eilers & Krejcik Gaming, and H2 Gambling Capital, advocating for low tax rates to enable legal operators to better compete with the underground market.
While these initiatives are praiseworthy and do raise public consciousness of the problem, they don’t offer a systematic and effective solution that can be implemented by authorities.
A Possible Tool
Atropos Intelligence is one of the “early birds” in this space, a startup established by industry veteran Ismail Vali that is developing a technology and consulting platform to address this gap. Atropos has constructed a suite of products under a platform known as Yield Sec.
“In our view, player protection and the operation of a sustainable industry (both onshore and regulated) are simply two sides of the best customer experience. You cannot effectively or genuinely protect customers without first safeguarding the market,” said Ismail Vali, founder and CEO of Atropos Intelligence (owner of the Yield Sec platform).
Yield Secs objective is to assist all participants in the legal wagering and gaming industries in achieving a just, secure, and safe environment where lawful, accountable betting and gaming are authorized, harm is reduced, customer satisfaction is improved, and society is safeguarded.
Yield Sec software thoroughly scans the internet for all commercial betting, gaming, and lottery websites, applications, links, posts, mentions, and so on, including content from both within and outside the jurisdiction, concentrating on those clearly targeting the area. The system pinpoints pertinent betting and gaming keywords and phrases, analyzing, classifying, ranking, and indexing them.
After content from legitimate operators is differentiated from content from unlawful entrants, the index is prioritized to show the various risks each product presents to tax revenue, licensing revenue, and player protection.
Human intervention, machine learning, and artificial intelligence aid in ranking and ordering threats, creating a matrix. This matrix specifies which content needs to be controlled and remedied at the legal operator level and which content needs to be removed and deleted from illegal operators. To facilitate the removal of unlawful content, Yield Sec collaborates with regulators and law enforcement across search, social, and digital media platforms that provide “oxygen” for advertising.
By limiting and deactivating the presence of unlawful operators in advertising, social media, search engines, and online platforms, their capacity to acquire new customers, reach, and re-engage existing ones is diminished. The objective is to render it impossible for illicit operators to generate profits. This entrepreneurial endeavor is on the verge of being achieved and possesses immense potential for the industry.
Technology will not condone the black market.
Society has tolerated the black market up to this point because online gambling and gaming have evolved into a global phenomenon. Considering that the gambling and gaming industry has matured in numerous regions, it is time to address the matter of illegal operators with more than just the hope that regulation alone will thwart and hinder black market operators.
Regulators, who have been compelled to adapt to the emergence and prevalence of online gambling, have made significant efforts with the tools at their disposal. However, it is time to utilize the technology that enabled the online industry to ensure its fairness, safety, and sustainability.
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